Pages

What George's Bistro has to do with Emerging Market Development

Recently, I wrote a post for the Darden Admissions blog, describing the history and intent of George's Bistro. If you don't know what that is you can check out our post, but put simply it's a 24/7 food stand at Darden that accepts payments on honor. There is no cashier or camera and minimal security. All we have is a sign asking people to pay on their honor.

But, as President of EMDC and sponsor of the Bistro, I've often been asked a fair and pertinent question.

What the hell does 24/7 food and honor payments have to do with emerging market development?

I'll respond in two broad categories. The first is academic and the second is esoteric.

First Reason - The Academic One

I'll be honest in saying that the inception of the bistro had nothing to do with emerging markets. However, as we got more involved in the project, the leadership board found itself having to justify our involvement. The bistro was exciting, but if it had nothing to do with our mandate, we very well couldn't do it.

So perhaps it is long overdue for us to share a bit about why we pursued George's Bistro.

The basic assertion is that contextualizing a business to the norms of the community it serves, improves outcomes for both the business and the community.

The Business Case
Food retail is among the most basic and universal businesses on the planet. It sits at the origins of mercantilism and it is no accident that the cities of Asia, Latin America and Africa are filled with informal food carts, stands, marts and all matter of micro-business. Entrepreneurship is the beating heart of global development, and billions of dollars of global aid today are funneled into incubators, funds and micro-finance banks to spur locals to start businesses. As a club, we needed to understand and address entrepreneurship, and food retail seemed especially pertinent.

However, it was the honor-payments that really tied it all together. Honor payments may be rare in corporate America, but they are a stable of the informal sector that operates in most developing markets. In fact, most of food retail in developing cities is often found in the "informal" sector, run by owners with little to none formal business education.

A study in South Africa of informal food marts (hawkers and spazas) found that only 15% - 30% of business owners graduated high school with most dropping out after middle school. In a survey, over 60% of owners expressed a need for basic skills such as management, bookkeeping, marketing and sales. High functioning skills such as computer literacy, HR relations and credit control were simply not yet relevant.

The fact is, businesses in the informal sector are looking for new business models to solve the basic logistical and management challenges they face. They struggle to hire and manage staff and control and run a business. Often, because they are operating on conventional and simple models, they incur high operating costs and volatile profitability. Furthermore, foreign capital comes with strings attached as these small businesses are forced to adopt western models of accounting and operation which may be ill-suited to their environment.

The Consumer Case

Our very first customer

There is also a consumer impact from ill-conceived business models. Food is the primary expenditure item for most of the developing world's population. The high cost of doing conventional retial is passed on to the consumer in the form of price inflation. In India, food retail prices are 5x the price at the farm and rising. The informal wholesale sector in Nairobi means families and small shopkeepers must travel miles across different markets to gain access to food.

The food model is imposing a very real cost on human beings. We need to see if we are working with the right model. Plans are built based on assumptions of infrastructure and support that simply do not exist. Businesses must contextualize their model to the needs of their customer (be it diet, income or any other factor), as well as to the environment around them.

Imagine if a business found a way to cut costs, and stabilize its prices. Stable food prices would lead to predictable budgeting for low income communities who would then be able to better save and invest disposable income.
Imagine if businesses could change the hours and locations in which they operated so that customers didn't have to waste time traveling to and fro. More free time for care-givers would improve childcare, increase working hours and boost incomes.
Imagine if business could improve the quality of the food they sold by operating at lower cost. Better food options would improve health and well being in the community, with higher calorie diets leading directly to social good.

The Opportunity
The point of George's Bistro is to illustrate the power of situating a business in the context of its community. Its the same reason Grameen Bank works so powerfully. Yunus was able to leverage the societal conventions of the communities he served to lend money without collateral or credit history. He realized that even poor individuals had a credit score in the community, undocumented and living in their reputation with their peers. If he could build a model where the community kept the borrower accountable, he would be able to manage credit risk. This allowed him to operate at costs far below any brick-mortar bank and lend at rates that seemed incredible. His model was fundamentally different and was, in a word, "disruptive".

The point is, contextualizing a business leads to better outcomes for the business owners (in this case the lending bank) and for its customers (in this case the poor).

Likewise, because Darden is a community of honor, we have shaped the Bistro to leverage the norms and expectations of our community. We believe this is disruptive. Our business can stay open longer, sell more and enjoy higher margins as a result of honor payments. Students and staff have greater access to lower priced goods and enjoy the psychological benefits of paying on their honor.

This is why ideas like George's Bistro matter to the world, if only in that they remind us to see the power of culture and community to shape a business and improve lives.

Second Reason - The Esoteric One

After the first pilot, I still had my doubts about whether this all made sense. Did I really want to spend my final year at Darden on this idea. In October, I called my dad who has spent most of his career working in various Asian countries.

I asked him if he had ever seen honor payments at work in India, Indonesia, Thailand or any other country he had visited. What he shared was eerily remarkable.

My dad did his MBA at the Xavier Labor Relations Institute (XLRI) in India, a near-top-tier program (below the IMs). While there, in order to make money, he opened up a food stand. They sold drinks and Indian snacks around the clock. Because they didn't have the money or time to man the stall, they left a notepad for students to write down what they had taken. They would then pay a local they had hired to go around and collect money every weekend. The fact is, keeping someone there all day was way too expensive.

I had found my example of honor payments closer to home, but I had also found another form of validation. It seems, almost 20 years later, I had started an honor-based food stand during my MBA program... just like my Dad did. I guess the apple doesn't fall far from the tree and the universe is full of strange coincidences. Who could make this stuff up?

The Opening of Grameen America

The Journey of Ideas
The story also pointed to another important misconception about development.

It's tempting to think of emerging market development as the transfer of ideas and insights from developed markets to the developing world. The stories of telecom development, renewable energy and mass retail all point to developed-world ideas proliferating the emerging markets.

However, the reverse also exists and is indeed powerful. Honor payments are a norm in developing economies but are disruptive here. Micro finance was born in the rural heart of Bangladesh but over a decade has migrated to the dilapidated cities of US and Europe. As we wrestle to solve the challenges facing under-developed economies, I believe we will find ideas and solutions that will reshape business around the world.

The next disruption, the next earth-shaking idea, may not be found in a research lab or board room. It maybe found in the dusty street corner, in that part of town that isn't safe to enter, in that city that just a few years ago was a village.